A Quick Look At The Various Debt Fund Types

Introduction

 

When you invest in mutual funds, you always hear two things, equity funds, and debt funds. Debt fund types invest in fixed-income securities. For example, If your friend needs Rs. 10,000 for a business and he has only Rs. 9,000 then he'd ask someone for the rest of Rs. 1,000. Now suppose someone gave him Rs. 1,000 rupees, and if the investor is asking for 10% interest, then the debt would be 1,100.

 

The Various Debt Fund Types

Overnight Fund: Overnight funds are a debt fund type that invests in debt securities maturing in only one day. 

Liquid Fund: Liquid funds are a kind of debt mutual fund that invests in short-term debts and the return amount is its return. The maturity date of a liquid fund is a maximum of 91 days.

Ultra-Short Duration Fund: Ultra-short duration funds are like liquid funds and the only difference is the duration of the debt papers. The maturity date is between 3-6 months. 

Low Duration Fund: Low duration funds invest securities that have a duration expiry of 6-12 months. You can plan your 6-12 year goal by investing in low-duration funds. 

Money Market Fund: Money market funds are similar to low-duration mutual funds with a maturity period of up to 1 year.

Short Duration Fund: Short Duration Fund invests in debt securities that have a duration expiry of 1-3 years.

Medium Duration Fund: Medium Duration Fund is a debt fund type that invests in debt securities that have a duration expiry of 3-4 years. 

Corporate Bond Fund: Corporate Bond Fund invests in corporate bonds which are rated AA+ and above. It is a good option for investors because it has lower credit risk.

Credit Risk Fund: This debt fund type invests in papers that are rated AA and below. Credit Risk Fund aims for higher returns but is risky compared to other debt funds. 

Banking & PSU Fund: Banking and PSU funds are safe and evergreen. This fund invests 80% which are AAA rated and safe.

Dynamic Bond Fund: Dynamic Bond fund is another debt fund type. In dynamic Bond funds, the performance or the returns vary depending on changes in interest rates. In such a fund, the fund manager dynamically alters the fund portfolio as per the anticipated change in interest rates.

Gilt Funds: Gilt funds are a debt fund type that invests through the government. So there is no credit risk. Gilt funds don't have any liquidity risk. These things make gilt funds a good choice for averse investors.

 

Conclusion

 

The various debt funds types are considered to be less risky than equity funds and are hence ideal for investors who are looking for stability in their investment process.